The IRS recently updated Publication 571, which focuses on 403(b) plans. Most notable is that beginning in 2008, distributions from tax-qualified retirement plans and tax-sheltered annuities can be converted by making a direct rollover into a Roth IRA, subject to the current restrictions on rollovers from traditional IRAs into Roth IRAs.

The IRS recommends that all plan participants, at the beginning of 2008, recalculate their 2007 Maximum Amount Contributable (MAC) based on 2007 compensation amounts. Contributions to 403(b) accounts are limited to the lesser of the "limit on annual additions" or the "limit on elective deferrals." Worksheet 1 from the publication assists in calculating the MAC, including the limits on annual additions and elective deferrals. For 2008, the limit on annual additions has been increased from $45,000 to $46,000. The limit on elective deferrals remains at $15,500.

Individuals 50 or older by the end of the year may be eligible to make additional catch-up contributions. These additional contributions cannot be made with after-tax employee contributions and one has to have the maximum amount of elective deferrals made for the plan year in question.

As in the past, if your contributions are more than your limit on annual additions, the excess amount is included in your income. Amounts in excess that are due to elective deferrals may be distributed if there was:

A reasonable error in determining the amount of elective deferrals that could be made under the limit on annual additions, or

A reasonable error in estimating your compensation.

If one has excess deferrals for a year, a corrective distribution may be made only if both of the following conditions are satisfied:

The individual or employer designate the distribution as an excess deferral to the extent one has excess deferrals for the year, and

The correcting distribution is made after the date on which the excess deferral was made.

Distributions generally cannot be made until the employee reaches age 59 ½ , has a severance from employment, dies, becomes disabled, has a qualified reservist distribution, or, in the case of salary reduction contributions, encounters financial hardship. These distributions are, in most cases, taxed as income.